Intellectual Property and the Pharmaceutical Industry
This report focuses on the applicability of patent and intellectual property laws to the pharmaceutical industry and the conflict between the inventor’s upright to protect his invention from being feeble by other parties for commercial bag and thus to justify his investment versus the need to revoke a legal monopoly in the public interest.
We begin by examining the definition of a patent. According to United States law, “Whoever invents or discovers any original and useful process, machine, manufacture or composition of matter, or any unique and useful improvement thereof, may obtain a patent therefore, subject to the conditions and requirements of this title.” (US Code, Title 35, Fraction II, Chapter 10, Section 101) [1] Also, Section 8 of the US Constitution gives Congress the power “promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries”[2]In simpler terms, a patent is “a property right granted by the Government of the United States of America to an inventor “to exclude others from making, using, offering for sale, or selling the invention throughout the United States or importing the invention into the United States” for a microscopic time in exchange for public disclosure of the invention when the patent is granted.” (US Patents and Trademark Office)[3] Although patent laws of one country do not apply in another, they are essentially the same in scope and purpose.
Patents apply to pharmaceutical products in the same way. However, there are important considerations that need to be made in the pharmaceutical industry. Firstly, unlike other technology-based industries like electronic appliances, trade secrecy is not a possible way to protect investment in the pharmaceutical industry. Because most drugs are based on principles obtained from the published research of medical scientists, pharmaceutical companies must obtain a patent as soon as a prototype drug has been synthesized, so as to prevent competitors from producing the same drug. The lengthy period of drug development, clinical testing and compliance with FDA investigations further shorten the effective life-span of the patent (Lehman, 2003)[4]. Although extensions may be granted to the patent term to compensate for inability to market the product in order to comply with safety and efficacy regulations, the maximum effective period is not allowed to exceed fourteen years (US Code, Title 35, Part II, Section 156)[5]. Thus pharmaceutical companies have a much shorter period of “patent exclusivity” than other industries.
Pharmaceutical companied require patent protection to recoup the investment necessary to develop it. The cost of developing a drug is uncertain; estimates vary from $200 million to $900 million (Public Citizen’s Congress Watch, 2003)[6]. The most widely quoted figure is $802 million dollars, from a Tufts University contemplate published in 2002 (De Masi, Hansen & Grabowski, 2003)[7]. Thus, pharmaceutical companies are eager to reclaim their investment by patent protection, effectively allowing them to operate a monopoly in the market for a particular drug.
Drug companies are required to apply for and obtain patents in whichever country it intends to market its drugs if they desire monopoly control on the market in that country. As such, American drug companies hold patents in a large number of countries in which they feel that marketing their drugs will be a capable use.
Patents grant their owners a right to exclusive spend, manufacture and commercial distribution of the patented item. However, exceptions to this exclusivity are set out in patent legislation, mostly in the form of compulsory licensing (Subramanian, 1990)[8]. By granting compulsory licenses the government permits the use of a patent by persons other than the patentee if positive conditions deemed to warrant such grant are fulfilled. In case of the pharmaceutical industry, the conditions for compulsory licensing is defined in the Doha Declaration on TRIPS and Public Health as public health crises, including those relating to HIV/AIDS, tuberculosis, malaria and other epidemics deemed by the government as a national emergency (Doha Declaration, Articles 5(b), 5(c) and 5(d))[9]. The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) grants governments the right to enforce compulsory licensing as long as the “the right holder shall be paid adequate remuneration in the circumstances of each case, taking into yarn the economic value of the authorization”; other conditions set out in TRIPS allows for compulsory licensing in remedying anti-competitive practices (TRIPS, Article 31, paragraphs (b), (c), (f) & (k)[10]. However, a sovereign government is given authority to resolve what constitutes a national emergency (Doha Declaration)[9], while TRIPS allows for compulsory licensing “to remedy a practice determined after judicial or administrative process to be anti-competitive”. Thus, there are no absolute guidelines as to what conditions justify compulsory licensing; they are clear on a case-by-case basis (Kim, 2007)[12].
In December 2006, the Thai government decided to sanction compulsory licensing of Merck & Co.’s anti-retroviral efavirenz drug (Fraser, 2006)[13]. Merck marketed the drug in Thailand at a cost of 1400 baht, or US$43 per patient monthly (thebodypro.com, 2007)[14]. Although accusations of rampant profiteering were made against Merck (Brownlee, 2008)[15], Merck claimed that they made no profits off the drug efavirenz in Thailand (Fraser, 2006)[12]. However, under pressure from the Thai government, Merck offered to lower the price of efavirenz to $23 per patient monthly, which is competitive with the $20 per patient monthly generic version an Indian drug company is willing to produce[13]. Merck also offered to provide a liquid version of Efavirenz at no cost to 2,500 HIV-positive children in Thailand and to sponsor HIV testing and treatment programs for children[13]. After initially appearing to accept Merck’s proposal, the Thai government withdrew from talks and began importing generic efavirenz made by the India-based Ranbaxy Laboratories (Zamiska & Hookway, Wall Street Journal, April 2007)[15]. Merck was given the consolation of being awarded 0.5 percent of revenue from the sale of the generic version as a token royalty in order to comply with TRIPS regulations[12]. Shortly following this, the Thai government also issued compulsory licenses to mass-produce generic versions of Kaletra (Lopinavir), produced by Abbott Laboratories, even after Abbott’s offer to sever the per patient yearly price of the drug from US$2200 to $1000 (Zamiska & Hookway, 2007, and Kaiser Daily HIV/AIDS Report, March 28 and April 16, 2007)[15][16][17].
Not long after, the Brazilian government also issued a compulsory license overruling Merck’s patent on efavirenz in Brazil (Cohen, 2007)[18]. In spite of offers by Merck to reduce the price of efavirenz from US$580 to $400 per year, Brazil noted that the generic version will cost about US$165 per year, allowing Brazil to make expected savings of $30 million a year (Cohen, 2007 and Third World Network Info Service on WTO and Trade Issues)[18][19].
Incidentally, the Brazilian government had, in 2005, threatened to issue a compulsory license for Kaletra, leading Abbott to slash the price of Kaletra by 42%, from $1.66 per pill to $1.17 (Reuters News Agency, 2007)[20]. Further cuts were made, and in 2007, the effect stood at $1.04 per pill (Reuters, 2007 and Benson, T., New York Times, 2005)[20][21]. In 2007, Abbott once again agreed to reduce the price of Kaletra by 30% from $1.04 to $0.73 and further to $0.63 per pill in 2008. This action convinced the Brazilian government to not break Abbott’s patent on Kaletra in Brazil (Japsen & staff, Chicago Tribune, 2007 and Lehman, Chicago Free Press, 2007)[22][23][24].
The Brazilian Ministry of Health (MOH) claims that Merck refused to negotiate a price acceptable to both parties for its efavirenz, thus leading to breakdown of talks and compulsory licensing[19]. Merck practices a policy of differential pricing, whereby its drugs are sold in a particular country at a price determined by the Human Development Index (HDI) and the HIV prevalence. Merck’s pricing for efavirenz varies from US$237 to $657 per patient per year depending on the affordability of the drug at a definite price in a given country (Biotech Business Week)[25]. Notably, however, Thailand and Brazil are separated by only eight places on the HDI Index, Thailand at 78 and Brazil at 70 (United Nations Development Program, 2007)[26]. Merck’s decision to lower the cost of efavirenz in Thailand to $237.25 per patient per year was therefore perceived as discriminatory by the Brazilian MOH. The MOH demanded that Merck sell its drug in Brazil for the same price, but, according to a MOH narrate, “the company (Merck) was relentless with regard to the price. Therefore, the discussion came to an end without a satisfactory agreement (BBC, 2008)[19][27].
Merck’s reduced pricing in Thailand was a move to compete with the low-priced generics in the Thai market. The move seems to be key to Merck’s policy to not lose a market altogether. However, Merck’s action in the face of compulsory licensing by the Thai government only gave the Brazilian Ministry of Health a reason to demand lower prices in Brazil. In light of Merck’s unwillingness to lower prices in Brazil to the levels in Thailand, compulsory licensing against Merck under the abuse of monopoly clause seems justified. However, it is to be remembered that Thailand also refused Abbott’s offers to reduce its notice of Kaletra to near-generic level and issued a compulsory license anyway. In fact, there are claims that the Thai military government is intent on breaking patents at random to gain populist support (Zamiska & Hookway, WSJ)[15]. It may thus be argued that Thailand’s overriding of patents had nothing to do with monopoly abuse by Merck or Abbott, and, by extension, similar action by the Brazilian government is a case of contempt of patent law.
The main points of view in this debate are:
(i) The practice of differential pricing by drug companies like Merck is discriminatory and harmful to the public interest; therefore, the government of a country should have unhindered right to issue compulsory licenses, overriding drug patents held by the companies.
(ii) The issuing of compulsory licenses by the government on one country can lead to a domino effect, where other countries rush to disclose compulsory licenses on the same drug. In the case of efavirenz, Thailand’s action prompted Brazil to relate a compulsory license, while countries such as Malaysia, Indonesia, Mozambique and Zambia have threatened to crash patents on antiretrovirals for HIV and other infectious diseases (Fuller, T., International Herald Tribune, 2008)[28]. Thus, some build of supranational control over compulsory licensing is required.
(iii) Both Brazil and Thailand’s government pays for the drug cocktail that HIV/AIDS patients need to take. Both countries have instituted a socialized health care structure where the government is the only “buyer” of healthcare services (which it then distributes to the public), effectively creating a status where there are two monopolies: the state-funded healthcare system and drug companies with patents (Zamiska & Hookway)[15]. However, since the government can revoke patents or yelp compulsory licenses, the government in effect operates the stronger monopoly, capable of dissolving the “seller’s” monopoly. This may be seen as an unfavorable state of affairs, and worldwide legislation is required to curb the government’s powers.
There are no straightforward solutions to these concerns. Cases of obvious and unprovoked trace discrimination by Merck or other drug companies may well equate to monopoly abuse and thus give governments in countries that feel hard done by a legitimate excuse to produce/import generics. In cases where compulsory licensing by governments clearly represents contempt of smart property rights, the situation is a lot more complicated. A note reduction by a pharmaceutical company in a country where compulsory licensing has forced them to compete with generics may precipitate a flurry of compulsory licensing events, with other governments following suit and using the earlier events to validate their actions.
It is considerable that TRIPS and the Doha Declaration grant governments considerable latitude in deciding what constitutes a national emergency or abuse of monopoly. Doha Declaration, Article 5b, states: “Each (WTO) Member has the honest to grant compulsory licenses and the freedom to resolve the grounds upon which such licenses are granted”; Article 5c states: “Each Member has the right to choose what constitutes a national emergency or other circumstances of gross urgency.” TRIPS Article 31, paragraph (k) states: “Members are not obliged to apply the conditions set forth in subparagraphs (b) and (f) where such use is permitted to remedy a practice determined after judicial or administrative process to be anti-competitive.”
I believe there should be more specific conditions set forth for governments wishing to issue compulsory licenses, especially when determining what constitutes anti-competitive practices. A clearer definition of “judicial or administrative process” will hold governments accountable and allow industries to know what actions on their part may be cause for revoking a patent. Otherwise, the original setup can easily lead to abuse of the system by governments as a means to garner popular serve while displaying contempt for intellectual property rights.
Literature Cited
1. US Code, Title 35, Part II, Chapter 10, Section 101.
2. US Constitution, Section8
3. US Patents and Trademark Office. Retrieved on November 27 from http://www.uspto.gov/main/glossary/index.html#p
4. Lehman, Bruce. The Pharmaceutical Industry and the Patent System (2003) New York: Columbia University Press.
5. US Code, Title 35, Part II, Section 156
6. Public Citizen’s Congress Watch. America’s Other Drug Problem: A Briefing Book on the Rx Drug Debate. (2003) Washington D.C. pp. 48
7. DiMasi, Joseph; Hansen, Ronald and Grabowski, Henry. The price of innovation: new estimates of drug development costs (2003) Boston, MA: Tufts Center for the Study of Drug Development
8. Subramanian, Arvind. Compulsory Licensing in Patent Legislation: Superfluous and Misleading. Economic and Political Weekly (Vol. 25, No.34, 25 Aug 1990). pp. 1880-1881
9. Doha Declaration on Public Health and the TRIPSAgreementArticle 5(b), 5(c) and 5 (d).
10. Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). Article 31, paragraphs (b), (c), (f) and (k).
11. Kim, Do Hyung. Research Guide on TRIPS and Compulsory Licensing: Access to Innovative Pharmaceuticals for Least Developed Countries. (2007) New York: Hauser Global Law School Program, New York University School of Law
12. Fraser, Jessica. Thailand issues license to manufacture generic version of Efavirenz; snubs Merck AIDS drug monopoly. Retrieved from http://www.naturalnews.com/021232.html
13. Merck Offers to Reduce Price of Antiretroviral Efavirenz in Thailand, Provide No-Cost Efavirenz, Testing, Treatment Access to Children: Retrieved from http://www.thebodypro.com/content/news/art41272.html
14. Brownlee, Shannon. Big Pharma’s Golden Eggs. Washington Post. Sunday April 6, 2008.
15. Zamiska, Nicholas & Hookway, James. Thai Showdown Spotlights Threat to Drug Patents: Abbott Protests Move To Buy Copycat Pills, But It Yields on Price. Wall Street Journal. April 24, 2007
16. Kaiser Daily HIV/AIDS Report. Drug Access:Thai Government, Drug Companies Fail To Reach Agreement in Talks Over Compulsory Licensing; Another Round of Talks Anticipated. March 28, 2007.
17. Kaiser Daily HIV/AIDS Report. Drug Access: Thailand Will Maintain Compulsory Licenses for Kaletra, Efavirenz, Despite Companies’ Drug Price Reductions, Health Minister Says. April 16, 2007
18. Cohen, John. Brazil,Thailand Override Big Pharma Patents. Science: vol. 316, no. 5826, pg. 816.
19. Third World Network Info Service on WTO and Trade Issues. Brazil Moves on compulsory license after failed talks with drug company. Retrieved on 11/28/08 from http://www.twnside.org.sg/title2/wto.info/twninfo050703.htm
20. Reuters: Brazil says Abbott to cut price of AIDS drug. July 4, 2007. Retrieved 11/28/08 from http://www.reuters.com/article/health-SP/idUSN0426968020070704
21. Benson, Todd. Brazil and U.S. Maker Reach Deal on AIDS Drug. New York Times. July 9, 2005.
22. Japsen, Bruce & staff. Abbott, Brazil inAIDSpact: Price of Kaletra drug to be slashed. Chicago Tribune. July 6, 2007
23. Lehman, Stan. Brazil strikes deal with Abbott to lower Kaletra price almost 30 percent. Chicago Free Press. July 10, 2007
24. Brazil:Kaletraprice cut agreed as generic efavirenz arrives. Retrieved fromhttp://www.aidsmap.com/en/news/3B8EF4C9-21F9-4484-9F28-F55CCBC38D3A.asp.
25. Biotech Business Week. Merck & Co., Inc., Again Reduces Price of STOCRIN (efavirenz) for Patients in Least Developed Countries and Countries Hardest Hit by Epidemic. March 5, 2007
26. UNDP. Human Development Index 2007/08 (2007) New York.
27. Brazil to break Aids drug patent. Retrieved 11/29/08 fromhttp://news.bbc.co.uk/2/hi/americas/6626073.stm
28. Fuller, Thomas. Thailand takes on drug industry, and may be winning. International Herald Tribune, April 11, 2007. Retrieved 11/29/08 fromhttp://www.iht.com/articles/2007/04/11/news/pharma.php
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